ework #8 ezto.mheducation.com/hm.tpx Homework 8 Question 6 (or 6) value: 1000 po

Question

ework #8 ezto.mheducation.com/hm.tpx Homework 8 Question 6 (or 6) value: 1000 points · Stock Y has a beta of 1 5 and an expécted return of 17.6 percent. Stock Z has a beta of 1.0 and an expected returm of 12 3 percent. If the nsk free rate is 62 percent and the market risk premium is 7 percent, the reward-to-nisk ratios for stocks Y and Z are and percent, percent, Stock Y is undervalued and respectively Since the SML reward-to-nisk is Stock Z is overvalued(Do not round intermediate calculations. Enter your answers as.a percent rounded to 2 decimal places, e.g-. 32.16.) References eBook & Resources Worksheet tearming obiective 13-04 The securty market tine and the risk retumitrade off 13 7 The Security Market section Line Difficulty: Basic Type here to search acer

Explanation / Answer

Here reward to risk will be Treynor Ratio

Stock Y= 17.6/1.5=11.73
Stock Z=12.3/1=12.3

SML reward to risk= 6.2+7/1=13.2

Since Reward to risk ratio is less than that of the market, Both are overvalued

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